How can good governance help address climate risk?
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SPOTLIGHT ON MANAGING RISK IN CONSTRUCTION
As more and more government pledges are made which require immediate and urgent action, policy and legal changes could be swift and sudden. Companies will need to be prepared for further, as yet undefined, tightening. The likelihood, intensity and frequency of “extreme” weather events which could impact companies’ ability to complete works on time is growing. As well as putting standard contracts under strain, if those events become common, this creates uncertainty over the enforceability of “force majeure” clauses which require such events to be “unforeseeable”. There are legal and reputational risks too, if sustainability performance fails to keep pace with demand. In a worst-case scenario, this could ultimately lead to asset values being eroded, reputational damage, difficulties in accessing future funding (via investment or bank lending) and even litigation.
However, managing these risks could also present the sector with the chance to deliver significant improvements to theway buildings are built and used, for the benefit of the environment and society at large, and for construction companies themselves in terms of delivering attractive assets which retain value over the long term. Innovations include delivering buildings whereenergyefficiencyhasbeen“designed- in”, using Building Information Modelling (BIM) principles and tools to analyse a building’s energy efficiency throughout its life, or by relying more heavily on precision off-site manufacturing to reduce waste and minimise the risk of defects. They also include embracing the circular economy to re-use and recycle materials where possible and designing “smart” buildings which automatically control energy usage, or investing in research around new materials. Green finance in the form of government grants, loans and/or ESG investment could provide the way forward.
Since the built environment is a major source of greenhouse gases, responsible for around 40% of all carbon emissions globally coming from the construction or operation of buildings 59 , pressure to improve performance is high, while the risks facing the construction industry are multi-faceted. The availability and cost of raw materials have, in the short-term at least, been impacted by the COVID-19 pandemic on supply chains, while the possibility of large fluctuations in energy prices also looms large for an industry that often operates on very thin margins. Further uplifts in costs are possible as regulation increases, with the EU for one requiring all new buildings to be “nearly zero-energy” this year and new rules to increase building energy performance targets coming into force last year across the bloc 60 .
When it comes to construction, everything has to be built with net zero in mind.What COVID-19 has done for construction is to speed up the move into an off-site, digital workspace, so that building better can be more easily ‘designed in’. That is going to benefit the climate change agenda.
- Liz Jenkins, Partner, Clyde & Co, London
59 World Green Building Council https://www.worldgbc.org/news-media/WorldGBC-embodied-carbon-report- published#_ftn1 60 Energy Performance of Buildings Directive https://eur-lex.europa.eu/legal-content/EN/TXT/ PDF/?uri=CELEX:32010L0031&from=EN
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